Shop on the Clock

1. 800. 973.1177

PERSONAL FINANCE

Sponsored By Law School Loans

Shop on the Clock [The Motley Fool by Dayana Yochim] This isn’t another story about how to get last-minute holiday bargains. (Though if you insist, here are a few Fool-approved ideas.)

No, this is a story about how to milk your

(where the employee pays out of pocket and is

Group disability insurance isn’t as stan-

employer for every last penny that is rightfully

reimbursed).

dard a perk. If your employer does not pay

yours.

for coverage but offers discounted rates to If your boss is particularly generous, there

employees, strongly consider it. If you suffer

Remember that thick packet of company ben-

are additional perks you shouldn’t pass up. An

from a non-work-related injury, this coverage

efits materials the smiling human resources

FSA (flexible spending account) lets you put

could net you up to 60% of your salary while

assistant handed you on your first day on the

away pre-tax dollars to cover expenses that

you are unable to work. Short-term disability

job? Neither do we. So go ahead and dig it out

aren’t included in your health-care coverage.

insurance kicks in when you must miss work

from the bottom drawer because there may be

Co-payments, extra contact lenses, chiroprac-

for anywhere from eight days to six months.

dollar bills stuck to nearly every page.

tor visits — even dependent care costs can be

Long-term coverage applies to periods of six

paid for out of this account. (Our tax man, Roy

months or longer.

That stack of brochures and booklets contains

Lewis, describes the rules in more detail.)

As with warehouse clubs and white socks,

oft-overlooked benefits that can add up to substantial savings over time. Why pay for

There’s a certain amount of record-keeping

huge savings can be had when buying in bulk.

things like doctors’ bills, disability insurance,

required. You determine the amount of money

If you do not have life or disability coverage,

and baby-sitting if your boss is willing to pick

you want deducted from your paycheck for the

ask your human resources department for

up the tab?

FSA. Any dollars that aren’t used by the end of

information on getting a company discount.

the plan year are forfeited. Employees must

Then spend a little time comparison shopping.

Here’s a list of common company benefits to

submit receipts for reimbursement.

Retirement extra credit

guide your at-work shopping spree.

Take a look at your credit card statements

Deferred compensation plans are a kind of

Discounted doctors’ bills

to get an idea of how much you might save.

“pay now, get paid back later” arrangement.

For 2005, the average family of four covered

You might be surprised at how much you pay

They allow you to defer some of your current

by an employer-sponsored health-care plan is

piecemeal over the year on expenses that are

compensation until either retirement or some

expected to spend about $12,000 on health-

covered under FSAs. The savings — an aver-

other time frame. Employees sacrifice some

care costs, more than $2,000 of which will be

age of 28% on expenses, because of the pre-

investing flexibility with such plans because

spent on out-of-pocket expenses.

tax contributions — are well worth it. On that

many employers invest the funds in cash-

$2,000 that the average family will shell out

value life insurance policies.

Health care is probably the biggest money-

out-of-pocket, that’s a savings of nearly $560.

Taxwise, qualified deferred compensation

saving benefit to working for The Man. While coverage isn’t usually gratis, most companies

Salary safety net

plans work like a traditional IRA, whereby the

ask employees to pay just a small percentage

Life and disability insurance are also offered

employee pays taxes only when she accesses

of the premiums based on the level of service

by many forward-thinking employers. Group

the funds. The amount the employee and em-

you choose.

life insurance is often provided at no cost to

ployer can contribute to the plan is limited.

employees, but you can purchase additional The most common medical plans are HMOs

coverage (standard plans offer the equivalent

In a nonqualified deferred compensation plan,

(health maintenance organizations), PPOs

of one year’s salary) if you tend to worry about

there is no limit to the amount of money you

(preferred provider organizations), POSes

accidental death or dismemberment.

can sock away. This option is usually available

(point of service plans), and indemnity plans

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only to top company brass. There are a variety

continued on back

1.800.973. 1177

PERSONAL FINANCE

Sponsored By Law School Loans

of plans that fall under this umbrella, each

Still, it pays to know what your boss is offer-

with its own tax consequences.

ing. There are two types of options offered by employers — ISOs and NSOs. You won’t

The Motley Fool’s benefits do not include a cute shoe stipend, much to Dayana Yochim’s dismay. Still, that doesn’t stop her from shopping on the clock. The Fool’s disclosure policy is a bargain at any price.

As with any investment, know what you’re

pay taxes on profits of ISOs (incentive stock

buying, and make sure it’s the best place for

options) until you sell. However, when you

your money. Sometimes it’s better for your

buy (or “exercise”) NSOs (nonqualified stock

long-term financial health to invest outside

options), the transaction is treated as tax-

This feature may not be reproduced or dis-

of an employer-sponsored plan. Here’s a

able income by Uncle Sam. When you sell

tributed electronically, in print or otherwise

general pecking order and guidelines of what

(hopefully at a profit), the profits are treated

without the written permission of uclick and

money to put where.

as regular income — which usually is at a

Universal Press Syndicate.

higher tax rate than that of capital gains My colleague, Robert Brokamp, has a few

taxes.

“wacky” ideas about how to best manage your 401(k), particularly if the investment

ESPPs (employee stock purchase plans) also

choices your employer offers aren’t quite up

offer options for purchase during a predeter-

to snuff.

mined time period. Stock may be offered at a discount, and plans are either “qualified”

Company ownership

(exempt from taxes at the time of purchase)

Eyeing a seat on the board of directors? If

or “nonqualified” (fewer tax breaks). If your

you amass enough company stock, you may

company offers an ESOP (employee stock

get an invitation and a key to the executive

ownership plan), your employer purchases

washroom. Employee stock options entered

company shares for you, and the shares vest

the common lexicon in the 1990s. Employees

during the time of your employment. Those

(or sometimes only company executives) can

shares can be handed over to you when you

purchase options at a preset price during a

leave or, occasionally, distributed earlier.

prescribed period of time. If the company’s share price rises during that time, share-

Finally, there are phantom (or “shadow” or

holders can sell (or “exercise”) their stock

“unit”) stock plans. These options are doled

and pocket a profit.

out on a limited basis and are usually based on the company’s share price performance.

Here’s the problem (you saw this coming,

Most are qualified plans and are used as

right?): Enron . WorldCom (aka MCI (NYSE:

incentives for corporate executives.

LU). The list goes on.

Before you get back to work According to the Employee Benefits Re-

The Certified Financial Planner Board of

search Institute and the Investment Company

Standards encourages employees to review

Institute, nearly one-quarter of employees

employer-provided benefits regularly and fill

over the age of 60 had more than half of their

in the gaps with outside financial services or

401(k) assets in their employer’s stock, and

products.

16% of them entrusted 80% of their retirement savings to the performance of their

If you feel unqualified to even assess what

company.

you need, here’s a crib sheet for money literacy. And to help you procrastinate even

As too many employees discovered in the

more, here’s some weird financial news.

past decade, the road to instant riches is not

Just make sure that you’ve got real work

paved with employee stock options. Taxes

you can quickly pull up on your computer

and timing issues can wreak havoc on your

screen when you hear your boss rounding the

finances. (If you’re a real martyr, here are 10

cubicle corner.

other ways to mismanage your 401(k).)

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